Small Business Owners (Sang-gong-in)
Overview
Small business owners (소상공인) refer to self-employed individuals and small enterprises operating small-scale businesses with a number of regular employees below a certain threshold. In South Korea, they are defined by the "Act on the Protection and Support of Small Business Owners" according to industry-specific criteria for the number of regular employees (e.g., fewer than 10 in manufacturing, fewer than 5 in wholesale/retail and service industries). They account for over 90% of all businesses, making them a core economic entity. They serve as the foundation of local economies and a primary source of job creation, but face structural limitations such as low productivity, high closure rates, and vulnerability in competition with large corporations.
Main Content
Definition and Scope of Small Business Owners
Small business owners are defined under Article 2 of the "Act on the Protection and Support of Small Business Owners" as "persons with fewer regular employees than a certain standard." The industry-specific criteria are as follows:
- Manufacturing, mining, construction, and transportation: fewer than 10 regular employees
- Wholesale and retail, food service, accommodation, information services, and business facility management/support services: fewer than 5 regular employees
- Other industries: fewer than 5 regular employees (with some exceptions)
Small business owners are smaller in scale than small enterprises (e.g., fewer than 50 employees in manufacturing, fewer than 10–30 in services) and include self-employed individuals, small franchisees, and traditional market merchants.
Economic Importance
Small business owners hold a significant share in the Korean economy. As of 2023, they account for over 90% of all businesses (approximately 7 million) and provide about 40% of total employment. They are particularly the backbone of local economies, offering services closely tied to daily life, such as neighborhood supermarkets, restaurants, hair salons, and laundromats. Additionally, their low barriers to entry for startups contribute to new job creation and maintaining economic diversity.
Key Issues and Problems
Small business owners face several structural challenges:
- Excessive competition and low profitability: Intense competition within the same industry leads to low operating profit margins, and rising rents and labor costs further deteriorate profitability.
- Unfair competition with large corporations: Market encroachment by large franchises and online platforms (e.g., delivery apps, Coupang) weakens the competitiveness of small business owners.
- Difficulty in financing: Lack of collateral and credit issues make bank loans difficult, often forcing reliance on high-interest loans.
- Slow digital transformation: Inadequate adoption of online marketing, e-commerce, and digital payment systems hinders adaptation to changing consumer trends.
- Delayed recovery after COVID-19: Sharp revenue declines and increased debt during the pandemic have left many still recovering, with closure rates remaining high as of 2024.
Government Support Policies
The government implements various policies to support small business owners:
- Financial support: Policy funds (loans) for small business owners, guarantees through the Korea Credit Guarantee Fund, and low-interest loan conversion programs.
- Business stabilization: Rent subsidies, reductions in social insurance premiums (National Pension, Health Insurance), and electricity rate discounts.
- Digital transformation support: Assistance with online shopping mall entry, smart store training, and distribution of kiosks and POS systems.
- Re-startup support: Post-closure re-startup education, store demolition cost support, and debt adjustment programs.
- Local commercial district revitalization: Traditional market modernization projects, specialized support for alleyway commercial districts, and win-win cooperation funds.
Small Business Owners and the Platform Economy
Delivery app platforms such as Baedal Minjok, Coupang Eats, and Yogiyo charge commissions (intermediation fees of 6–15%, plus separate advertising costs) that significantly erode the profits of small business owners. In 2024, the government formed a win-win consultative body to reduce delivery app fees, but substantial improvements have been slow. Additionally, entry fees and advertising competition on large platforms like Coupang and Naver impose burdens on small business owners.
Recent Trends
Key trends for small business owners in 2024–2025 include:
- Impact of high interest rates and inflation: Delays in base rate cuts have increased interest burdens for small business owners, with the delinquency rate on small business loans exceeding 2% at the end of 2024, marking a 10-year high.
- Accelerated digital transformation: Adoption of AI-based kiosks, unmanned stores, and chatbot customer service is expanding, but initial cost burdens and lack of digital literacy are widening the gap among small business owners.
- Debate on delivery app fee regulation: In early 2025, a bill to introduce a cap on delivery app fees was proposed in the National Assembly, making win-win measures between platforms and small business owners a major political issue.
- Policies to improve survival rates: The government announced a "Small Business Owner Rebound Package" in 2025, promising 3 trillion won in low-interest loans and consulting support. It is also strengthening job transition support and re-startup education for closed small business owners.
- Regional extinction and small business owners: In depopulated areas (small local cities, rural/fishing villages), the closure of small business owners is accelerating, deepening the hollowing out of local economies. In response, the government is promoting a "Local Commercial District Renaissance" project to create cultural and startup spaces using vacant stores.
- ESG and small business owners: With the spread of ESG management among large corporations, small business owners face pressure to adopt ESG elements such as eco-friendly packaging and community contributions, but cost burdens make implementation difficult.
Related Topics
- [[Self-employed individuals]]
- [[Small enterprises]]
- [[Traditional markets]]
- [[Delivery app fees]]
- [[Policy funds]]
- [[Local economy]]